Can I Do Business Name On 1099 Without Registering

Photograph Courtesy: [Maskot/Getty Images]

As the deadline for filing taxes in the United States approaches, employees effectually the country begin receiving the forms they need to complete their tax returns. And throughout this process, workers within the same visitor may receive two dissimilar revenue enhancement forms — one might receive a Due west-two grade, and the other may get a 1099 class. Both forms record the amounts of money the respective individuals earned, but they differ to reflect the type of work each person performed for the visitor and their professional human relationship with that business. The 1099 is specifically for a type of worker called an independent contractor, and the Due west-2 is designed for traditional employees.

If y'all're unsure how to classify the nature of the work you're doing for a business or the role you take in the company, it's of import to larn more than nigh the differences betwixt employees and independent contractors. The distinction does matter, especially when it comes to taxation matters. To learn more, take a deeper dive into the details of what independent contractors are and the ways they differ from traditional employees.

Employees and contractors both perform work for businesses, but contractors work for themselves, whereas employees work directly for the business. Traditional employees earn wages and are on a company's payroll, and they receive benefits similar health insurance in substitution for agreeing to abide by the business organization' rules. Contained contractors, on the other hand, typically accept much more flexibility in how they work and what they work on. They might be hired but for a specific flow of fourth dimension or to complete a specific projection. In exchange for this freedom, they don't receive benefits from the visitor, and they may be paid a apartment rate instead of hourly wages or a salary.

This distinction is of import when information technology comes to withholding and paying taxes. Businesses are required to withhold income, Social Security and Medicare taxes and pay them to the IRS on behalf of traditional employees. They don't make these tax payments for contained contractors, who are required to pay self-employment taxes on their earnings.

Some employers may also accept benefit-related withholdings that they forward to private businesses, such equally health insurance or retirement accounts. At the finish of each agenda yr, contractors receive an accounting of all the wages they've been paid on a 1099 course. Employees receive the same information on a W-2 form, which besides displays the amounts of coin that the business organization has withheld from their checks.

How to Tell if You lot're an Independent (1099) Contract Employee

Sure elements of your working human relationship with a business assistance to classify you as an independent contractor. The IRS differentiates independent contractors based on 3 categories: behavioral control, financial control and the nature of the relationship. Contract employees take more than behavioral and financial command over their piece of work than employees do.

Behavioral command involves the level of oversight and direction that the concern has on your work. Traditional employees are assigned tasks they must complete, whereas independent contractors accept the option of accepting or rejecting work. An employee may be told they're required to work from 9 a.chiliad. to v p.yard. on Mondays through Fridays and can face up consequences if they regularly fail to meet these standards, just a contractor can cull when and where to piece of work as long as they complete tasks by sure times. Regular employees oftentimes also must participate in periodic evaluations that measure their progress over a length of time. An independent contractor may be asked to complete a project by a certain engagement, without the expectation of extensive feedback on their work or evaluations of their performance.

Financial control involves the way money flows in your working relationship. Businesses typically cover most or all expenses for their employees, but independent contractors are more likely to be expected to pay expenses they incur in completing piece of work for a business. They may be expected to provide their ain supplies or equipment, such as the laptops they consummate piece of work on. Employees receive regular paychecks at a set frequency, simply independent contractors may only receive payment when a job is completed. The timing of payment may follow an accounts payable cycle rather than a biweekly payroll schedule.

The nature of the relationship is too a key factor in determining the nature of your working relationship. An contained contractor's relationship may begin with a contract, simply an employee'southward relationship is more than likely to begin with a job offer. Businesses don't ordinarily offer any benefits, such every bit insurance, paid days off or retirement accounts, to independent contractors. However, employees are more likely to receive at least one blazon of these benefits. Employment relationships last until one of the parties ends them, only relationships between a business and an independent contractor are finite — they're normally tied to the end of a project or time period.

What to Do If You're Misclassified

When you lot give your time and effort to a business organisation in exchange for coin, information technology'south important to know whether you're classified as an employee or a 1099 contractor. Misclassification can have serious consequences. If you're a contractor merely believe y'all're an employee, for example, you might be working under the supposition that the business organisation is withholding tax money on your behalf, and so yous wouldn't fix aside funds throughout the year to cover self-employment tax payments. That could outcome in unwelcome surprises when yous set up to file your return. On the other hand, say you lot're an employee but believe you're a contractor. Yous could miss out on employee benefits, such as health insurance coverage and retirement savings account matching, that yous'd want to take advantage of. Also, employees can receive worker'south bounty, but independent contractors are not covered.

Should you determine that yous're misclassified, you can yet get properly classified. If you lot feel comfortable doing so, the simplest method may be to approach either a straight managing director or a representative from the visitor's human being relations section to discuss your concerns. In some cases, yous may exist able to reach a satisfactory resolution this way.

In some circumstances, however, you might not experience comfortable approaching someone directly. In that case, you lot tin can provide information to a representative at the IRS, and they tin give you an official determination about how the system classifies your working function. To get this determination, submit a completed copy of Course SS-8 to the IRS. Be enlightened that the IRS has a lengthy turnaround time; information technology can take up to six months to get answers. In the meantime, information technology's still up to you to brand sure y'all file your taxes properly.

If you've already filed taxes based on what you think your classification is and the IRS views your role differently, you may need to amend your near recent tax return. Although information technology'south an added cost, discussing this process with an experienced tax chaser tin assistance y'all avoid potential missteps. It can also help to contact your local labor board. Typically, labor boards have the potency to carry hearings and enforce the decisions fabricated during those hearings. In some cases, a formal lawsuit may be necessary to get the correct nomenclature and any benefits that become forth with it.

If you've been misclassified every bit an contained contractor, yous tin can use Form 8919 to calculate how much of your wages should take gone towards Medicare and Social Security withholdings. Your employer will pay these withholdings at taxation time, and this protects your fiscal interests.